Secrets of Offshoring Success

Secrets of Offshoring Success

Even as offshore outsourcing has matured, best practices have been few. Now two top academics reveal the principles that should guide CIOs

Reader ROI

  • Emerging best practices for offshore outsourcing
  • Tips for spanning the CMM divide
  • How to build "social capital" with suppliers

Mary Lacity probably knows as much about IT outsourcing as anyone in the industry. Currently professor of information systems at the University of Missouri-St Louis, Lacity has studied the industry since its genesis nearly 20 years ago. And you'd be hard pressed to find someone who's talked to more CIOs about their outsourcing coups and catastrophes. Yet just a few years ago when CIOs would call Lacity up and ask her if she could send them any good offshoring research, even she had to say: "No."

Sure, there's anecdotal evidence of what's worked for some and what hasn't for others when sourcing IT work overseas. But definitive best practices have been hard to come by.

So three years ago, Lacity and Joseph Rottman, assistant professor of information systems at the University of Missouri-St Louis, set out to rectify that by conducting interviews with offshore outsourcing practitioners and their suppliers. Using that research, they've developed what they believe to be one of the first rigorous, peer reviewed examinations of offshoring best practices.

To date, they've interviewed more than 165 individuals from 40 companies — and not just the usual suspects. Certainly, they've talked to IT executives and project managers at client organizations. But Rottman also spent three weeks in Bangalore, Mumbai and Hyderabad interviewing members of offshore development teams from managing directors down to programmers. Cumulatively, these one-on-one talks have provided a gold mine of data. The duo has produced no less than eight published articles and reports from their research, gobbled up by information hungry offshoring customers and suppliers. And they plan a book to be published by early 2008.

Lacity and Rottman's early examinations focused on the offshore outsourcing learning curve and best practices for accelerating it while maintaining quality and cost savings. Now they're focused on the delicate process of transferring knowledge offshore while still protecting intellectual property.

The basic thrust of their findings — that offshore outsourcing takes a lot more work than its domestic counterpart — comes as no surprise. But their research crystallizes just where that micromanagement proves most effective and sheds light on some novel tricks of the trade. Although most advice about how to do offshore outsourcing right focuses on processes, requirements, and the like, Lacity puts forth an interesting thesis. Successful offshore outsourcing ultimately is not about processes or requirements. Rather, it is the result of a continuous build-up of "social capital" between customer and supplier. Recently, Lacity and Rottman sat down with US CIO senior editor Stephanie Overby to discuss some of the best — and worst — ways to do just that.

CIO:So, the bottom line appears to be that a relationship with an offshore outsourcer requires a lot of hands-on involvement.

MARY LACITY: More, more, more.

JOSEPH ROTTMAN: Better, better, better.

Yet the level of management required still catches offshore customers by surprise.

LACITY: It really does seem like each company starts afresh. Even though we have some research out there and consultants, so many companies make the same stumbles in their initial efforts to go offshore.

ROTTMAN:I got a call this week from a consultant for a very large company. They've got an operation with about 100 headcount in Hyderabad, and they're getting ready to shut it all down. They're really stumbling because they underestimated the knowledge transfer issues, the cultural differences, even the time zone issues. And this is a very large company that you would think would have done the due diligence and put some governance into the engagement before ramping up. Now it's spinning out of control.

LACITY: It's like every new sourcing market that I have seen. The initial push is for cost savings. Senior management tends to look at IT as a commodity. People go into it with that cost focus. But by the time you get to studying the companies that are pleased with their global sourcing model, their first sound bites are always about quality, agility and flexibility.

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